Action Sport is an S corporation owned equally by three shareholders. During the current year, Action Sport generated taxable income of $60,000. What is the tax treatment, if any, of the $60,000 income?
Multiple choice question.
Each shareholder will report the portion of income that he or she receives in cash, and Action Sport will pay tax on the remaining income.
Action Sports will report and pay tax on $60,000.
Each shareholder will report $20,000 in taxable income.
S corporations are tax-exempt entities, so there is no tax liability resulting from Action Sport's operation